Working Paper Series
Why Choose Women’s Work If It Pays Less?
A Structural Model of Occupational Choice
M. Melinda Pitts
Working Paper 2002-30
December 2002
The author gratefully acknowledges Brian Amour, Robert Clark, Julie Hotchkiss, Ann McDermed, Bob Moore, Paula
Stephan, and Laura Taylor. The views expressed here are the author’s and not necessarily those of the Federal Reserve Bank
of Atlanta or the Federal Reserve System. Any remaining errors are the author’s responsibility.
Please address questions regarding content to M. Melinda Pitts, Research Department, Federal Reserve Bank of Atlanta, 1000
Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-7009, melinda.pitts@atl.frb.org.
The full text of Federal Reserve Bank of Atlanta working papers, including revised versions, is available on the Atlanta Fed’s
Web site at http://www.frbatlanta.org. Click on the “Publications” link and then “Working Papers.” To receive notification
about new papers, please use the on-line publications order form, or contact the Public Affairs Department, Federal Reserve
Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.
Federal Reserve Bank of Atlanta
Working Paper 2002-30
December 2002
Why Choose Women’s Work If It Pays Less?
A Structural Model of Occupational Choice
M. Melinda Pitts, Federal Reserve Bank of Atlanta
Abstract: This paper controls for the selection bias associated with occupational choice and the labor
force participation decision in estimating the wage penalty for working in female-dominated
occupations. Using data from the May 1979 and the April 1993 supplements to the Current Population
Survey, the author finds that women working in female-dominated occupations have similar or higher
expected wages in their chosen occupation compared to nonfemale-dominated occupations. This result
indicates that there is efficient matching between occupations and skills for women in the labor force
and refutes the theories of occupational segregation or crowding as determinants of the gender wage
differential.
JEL classification: J24, J16
Key words: occupational choice, gender wage differential, selection bias
Why Choose Women’s Work if it Pays Less? A Structural Model of Occupational Choice
*
I. INTRODUCTION
It is well-known that the majority of women work in a limited number of occupations
characterized by a proportionately high number of female workers. Moreover, workers in these
female-dominated (FD) occupations earn less, on average, than workers in traditionally male or
integrated occupations (McPherson and Hirsch 1995). This occupational wage differential is
widely accepted as a partial explanation for the pervasive gender wage-differential. However, it
is unclear why an individual would enter into a FD occupation if the wages are lower than in
nonfemale-dominated (NFD) occupations. It is also unclear if women who choose FD
occupations could earn more in occupations that are NFD. Therefore, attributing a portion of the
gender wage differential to occupational differences may be incorrect. Indeed, differences in the
occupational choices of men and women will only explain the wage differential between genders
if females in FD occupations could expect to earn higher wages elsewhere.
Occupational segregation by gender and the gender wage differential have been the focus
of much empirical research, with the majority of work using data from the 1970s and early
1980s. The consensus is that a negative relationship exists between the percentage female in an
occupation and the wage. Many of these studies, however, are plagued by problems associated
with selection bias arising from the endogeneity of the occupational choice and work decisions
to one’s wage. If the error terms of the occupational choice and work decision equations are
correlated with the error term in the wage equation, this could lead to biased coefficient
estimates. Furthermore, while many studies have shown that workers in FD occupations earn
2
less than workers in other occupations, there is little evidence concerning whether workers in
these FD occupations would be better or worse off in other occupations.
This study controls for the selection bias on wages associated with occupational choice
and the work decision by estimating a bivariate probit with selection as the first stage and the
wage estimation as the second. This is accomplished using data from the May 1979 and April
1993 supplements of the Current Population Survey. In order to capture any penalty for working
in a typically female occupation, a wage differential between FD and NFD occupations is
estimated using the predicted wage for each individual in each occupation. Contrary to earlier
research, the results indicate that women are not choosing the occupation that pays less when
they enter a FD occupation. In fact, for the most part, women who choose to work in FD
occupations receive a wage premium for doing so. This result, in effect, indicates that there is
efficient matching between occupations and skills for the women in the labor force.
Furthermore, it refutes the explanation that occupational segregation or crowding explains part
of the gender gap in wages, as the gender gap would be larger if more women worked in NFD
occupations.
As the results in this research differ from much of the earlier research, I also estimate a
model which is similar to previously reported models that do not control for selection bias. The
results of this estimation indicate a penalty for entering a FD occupation for all workers, which is
consistent with earlier findings. This outcome supports the argument that self-selection matters
and indicates that the selection model results are not merely a product of the data.
3
Finally, the estimated wage differential from the selection model is included in a
structural model of occupational choice. The results indicate that the wage penalty is a
dominating factor in the occupational choice decision, thus mitigating support for occupational
crowding due to discriminatory hiring practices as an explanation for the different choices in
occupations.
A review of previous literature is in section two, followed by the theoretical and
empirical models in sections three and four, respectively. A description of the data is included in
section five, followed by the estimation procedures in section six, the results in section seven,
and the conclusion in section eight.
II. PREVIOUS RESEARCH
Two key economic theories have commonly been used to explain occupational
segregation and the resulting wage differential: gender differences in human capital and
occupational crowding. Polachek and Siebert (1993) narrow human capital theory to focus
specifically on the impact of intermittent labor force participation. They propose that women
anticipating periods of absence may invest less in human capital and that acquired skills will
depreciate during these spells of absence from the labor force. The implication is that because
women have more intermittent participation than men, women choose occupations that have a
lower atrophy rate of skills and flatter earnings profiles. While this earnings profile minimizes
the penalty for absence from the labor force and maximizes the woman’s lifetime earnings, it
results in lower relative wages when compared to men.
